60.1K

Verified Solution

Link Copied!

Tunnel plc has a number of investment properties, which it carries at fair value. Other assets are held at cost.

At 31 December 20X1 investment properties had a fair value of 100m.

The following transactions relating to the investment properties occurred during the year:

(i) During the year to 31 December 20X2, four new investment properties were bought from another company for a total of 17m. Legal fee and other acquisition costs amounted to an additional 0.4m.

(ii) On 1 August 20X2, Tunnel plc occupied for its own use a property that up until then has been rented out as an investment property. Its fair value at 1 August 20X2 was 5.2m (5.1m at 31 December 20X1). The land element of the property is 1.2m at 1 August 20X2.

The property had an estimated remaining useful life of 20 years. Bridge plcs policy is to depreciate buildings on the straight line basis.

(iii) On 1 December 20X2, Tunnel decided that an investment properties should be sold after redevelopment. The property had a fair value of 3m at 31/X2/X1 and 2.8m at 01/X2/X2. Redevelopment work started on 1 December 20X2.

The fair value of investment properties (correctly classified at 31 December 20X2, equals 125m.

Required

(a) Explain how the situations in notes (i) to (iii) should be dealt with in the financial statements of Tunnel plc for the year to 31 December 20X2.

(b) Prepare the ledger accounts for investment properties and fair value adjustment in the accounting records of Tunnel plc for the 20X2 financial year

Answer & Explanation Solved by verified expert

See Answer